FISCAL CLIFF FEARS HIT OVERBOUGHT STOCK MARKET -- TREASURIES ATTRACT MONEY AS SAFE-HAVENS -- US DOLLAR GETS A BOUNCE OFF SUPPORT -- RETAIL SPDR STILL STRUGGLING -- MANY RETAIL STOCKS ARE LAGGING THE S&P 500 -- MERRY CHRISTMAS!
FISCAL CLIFF FEARS HIT OVERBOUGHT STOCK MARKET... Link for todays video. Fiscal cliff fears hit the markets on Friday as money moved from risky assets to relative safe-havens. Also note that stocks and the Euro were quite overbought, while Treasuries and the Dollar were oversold. Perhaps the fiscal cliff was just an excuse to alleviate such conditions. Stocks, oil and the Euro retreated in early trading. Treasuries and the Dollar bounced. Gold treaded water. Chart 1 shows the S&P 500 ETF (SPY) falling below 143 with a sharp decline on the open. The trend is still up, but the ETF could be forming a lower high because it failed to reach the autumn peaks around 146. Chartists should watch support in the 139 area for signs of a trend reversal that could signal a continuation of the October-November decline. The Raff Regression Channel and December lows combine to mark a support zone in the 139-141 area. I am using a fairly wide zone because trading could become quite volatile as volume thins next week. A move below 139 would break the lower trend line of the Raff Regression Channel and signal a continuation lower.
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Chart 1
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Chart 2
Chart 2 shows the S&P MidCap 400 SPDR (MDY) hitting a new high this week and then falling back. MDY is clearly the strongest of the major index ETFs. Why? Because it is the only one to record a new high. Mid-caps show relative strength and this is a positive for the market overall. MDY broke channel resistance around 181 and horizontal resistance around 184. The Raff Regression Channel extends to the 182 area. I am therefore marking a support zone from 180 to 184. Yes, I know it is a rather large zone, but this is done to filter out some expected volatility.
TREASURIES ATTRACT MONEY AS SAFE-HAVENS... Chart 3 shows the 7-10 year T-Bond ETF (IEF) breaking support at 108 and falling sharply in early December. The ETF became quite oversold in the 107 area and bounced over the last three days. Todays big move can be attributed to fiscal cliff fears. At this point, I view the support break at 108 as bearish. This means the oversold bounce is just that, a mere oversold bounce. Broken support turns into resistance in the 108 area. A move above this broken support zone is needed to negate the support break and call for a reassessment. Chart 4 shows the 10-year Treasury Yield ($TNX) backing off resistance and falling within its trading range.
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Chart 3
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Chart 4
US DOLLAR GETS A BOUNCE OFF SUPPORT... The Dollar retained its status as a safe-haven currency with a bounce on Friday. Chart 5 shows the US Dollar Fund (UUP) getting a bounce off the September-October lows. While these lows may offer some support, the overall trend remains down and this is just considered an oversold bounce for now. The late July trend line and early December high combine to mark first resistance in the 22-22.10 area. Key resistance is set at 22.40. Notice that the Dollar and stocks maintained their negative correlation the last five weeks. The Dollar declined rather sharply and the S&P 500 ETF advanced. Chart 6 shows the Euro Currency Trust (FXE) surging above its September-October highs and becoming quite overbought this week. The December low and late July trend line mark support in the 128 area.
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Chart 5
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Chart 6
RETAIL SPDR STILL STRUGGLING... The stock market took off in December with the S&P 500 ETF moving above its early November high. While the broader market showed strength, the Retail SPDR (XRT) failed to confirm and hit resistance from the early November high. Chart 7 shows XRT breaking flag resistance with a surge above 63.5 and then stalling at the early November highs. With todays decline, the ETF failed at this resistance zone and failed to hold the flag breakout. This is a big negative for a key industry group. XRT is now testing support in the 61.5-62 area and the rising 200-day moving average comes in around 60.70.
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Chart 7
The first indicator window shows the price relative peaking in late November and moving sharply lower the last four weeks. XRT has seriously underperformed the market during this timeframe. The XRT:SPY ratio is breaking the August trend line and relative weakness continues. The second indicator window shows the StockCharts Technical Rank (SCTR) moving below 40 for the first time in over a year. This low SCTR reflects relative weakness within the ETF universe. Click here for the SCTR page with all ETFs.
MANY RETAIL STOCKS ARE LAGGING THE S&P 500 ... PerfChart 8 shows one-month performance for nine big retailers and the S&P 500. It is a mixed picture at best. First, notice that five of the nine are actually down over the last 22 trading days. The S&P 500 is up, which means these five are seriously lagging. Target (TGT), Home Depot (HD), Kohls (KSS), Macys (M) and TJX (TJX) are all down. Note that this PerfChart is based on Thursdays close and does not include Fridays price action. Second, note that eight of the nine retailers are underperforming the S&P 500. Even advances are up less than the S&P 500, which is a sign of relative weakness. Amazon (AMZN), the big e-tailer, stands out in the crowd with the biggest gain and some serious relative strength.
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Chart 8
MERRY CHRISTMAS! ... On behalf of everyone at StockCharts.com, I would like to wish you all a very Merry Christmas and a happy holiday!
Chart 9
